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Are we fracked? The impact of falling gas prices and the implications for coal-to-gas switching and carbon emissions

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  • Christopher Knittel
  • Konstantinos Metaxoglou
  • Andre Trindade

Abstract

We discuss the environmental implications of the dramatic drop in the price of natural gas following the US shale gas boom due to the rise of modern hydraulic fracturing. In the first part of the paper, we argue that the ensuing drop in the price of natural gas has an ambiguous effect on global carbon emissions because of three countervailing effects: coal-to-gas switching in the US electric power sector, an increase in the relative cost of US renewable energy sources, and an increase in US coal exports. Our position is that without a meaningful cap, the shale gas boom is likely to increase global emissions and the period during which natural gas is used as a bridge fuel to clean energy should be limited. In the second part of the paper, we review recent environmental policies for the US electric power sector that have contributed to reducing carbon emissions, and discuss the complex economics of the newly introduced Clean Power Plan. Although the availability of cheap natural gas has been factored in US environmental policy and has helped electricity generators to achieve compliance with various rules and regulations, it should not derail policy from its long-run objective, which is the transition to a less fossil-fuel dependent economy.

Suggested Citation

  • Christopher Knittel & Konstantinos Metaxoglou & Andre Trindade, 2016. "Are we fracked? The impact of falling gas prices and the implications for coal-to-gas switching and carbon emissions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(2), pages 241-259.
    • Handle: RePEc:oup:oxford:v:32:y:2016:i:2:p:241-259.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grw012
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    Cited by:

    1. Peer, Rebecca A.M. & Sanders, Kelly T., 2018. "The water consequences of a transitioning US power sector," Applied Energy, Elsevier, vol. 210(C), pages 613-622.
    2. Gürsan, C. & de Gooyert, V., 2021. "The systemic impact of a transition fuel: Does natural gas help or hinder the energy transition?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 138(C).
    3. Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2021. "Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(3), pages 543-575.
    4. Glenk, Gunther & Reichelstein, Stefan, 2021. "Intermittent versus dispatchable power sources: An integrated competitive assessment," ZEW Discussion Papers 21-065, ZEW - Leibniz Centre for European Economic Research.
    5. Theo, Wai Lip & Lim, Jeng Shiun & Ho, Wai Shin & Hashim, Haslenda & Lee, Chew Tin, 2017. "Review of distributed generation (DG) system planning and optimisation techniques: Comparison of numerical and mathematical modelling methods," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 531-573.
    6. Glenk, Gunther & Reichelstein, Stefan, 2022. "The economic dynamics of competing power generation sources," Renewable and Sustainable Energy Reviews, Elsevier, vol. 168(C).
    7. Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2017. "More Gas, Less Coal, and Less CO2? Unilateral CO2 Reduction Policy with More than One Carbon Energy Source," CESifo Working Paper Series 6697, CESifo.
    8. Hauenstein, Christian & Holz, Franziska, 2021. "The U.S. coal sector between shale gas and renewables: Last resort coal exports?," Energy Policy, Elsevier, vol. 149(C).
    9. Carroll, Deborah A. & Stevens, Kelly A., 2021. "The short-term impact on emissions and federal tax revenue of a carbon tax in the U.S. electricity sector," Energy Policy, Elsevier, vol. 158(C).

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